Article Joining forces: outsourcing military services to German companies 60 Volume 4 Issue 4
What are the challenges facing Germany s Government when it agrees to share responsibility for the armed forces with private firms? Authors Dr. Gerd Portugall former Senior Researcher Bundeswehr Institute of Social Sciences Germany Dr. Gregor Richter Senior Researcher and Project Manager Bundeswehr Institute of Social Sciences Germany 61
Article At times of war, a nation would traditionally turn to its military for protection from outside threats. But time and money have brought about great change, with the armed forces no longer solely responsible for defending a country s citizens. In today s corporate world, military action represents big business for the myriad private firms that have emerged to offer companies and private clients security in volatile territories. These firms can be found in several countries around the world where privatization of the military is a familiar exercise. The end of the Cold War and changes in global military affairs from widespread conflicts to more concentrated social and political tensions in African and Middle Eastern nations, for example have created a potentially lucrative market for security contractors. When talking about privatizing national security and dealing with political violence, it is important to make a distinction. As international conflict expert Herbert Wulf notes, bottom-up privatization involves non-state groups that use force without any authorization from government bodies to pursue their own political or economic agendas. Meanwhile, top-down privatization is initiated and supported by state groups that outsource the responsibilities traditionally assumed by national armed forces to private enterprises. The services offered by such enterprises range from consulting and training over logistics and transportation to combat missions. 1 This model has been particularly prevalent in recent years, with specific, restricted aspects of the German Armed Forces (Bundeswehr) rolled out to businesses. Privatization within the German Armed Forces In Germany, the jobs outsourced to private enterprises have generally been limited to non-military services, such as apparel, mobility, procurement and technical maintenance of heavy equipment. Meanwhile, the state only oversees core military duties, such as combat operations, peacekeeping missions and basic military training. While privatizing aspects of the military sounds relatively simple, the rules under the German Constitution make it a complex affair. According to the Constitution, there must be a strict separation between an armed military branch (article 87a) and an independent, non-armed civil-administrative branch (article 87b). Under the current constitutional framework, privatization of the Bundeswehr is only allowed when the outsourced jobs cover nonmilitary duties. New Public Management (NPM) In the past 20 years, the New Public Management initiative (NPM) has been launched to modernize the Government and give it a new corporate identity. 2 Introducing an NPM initiative generally involves the following: Establishing market orientations and competitiveness Taking management concepts from the private sector and applying them to government departments Separating politics from administration Introducing target- and result-oriented management Creating decentralized, semi-autonomous, organizational structures Essentially, NPM is about implementing private-sector business strategies and structures within a state organization. It also involves sharing traditionally state-held responsibilities with the private sector a process that has taken place in Germany since the 1980s, when the Government began delegating public services to corporations. Since 2002, public-private partnerships (PPPs) have been established between the Bundeswehr and German companies, to continue the roll-out of non-core military services to private firms. The benefits for both parties are clear: businesses generate huge amounts in revenue from lucrative military contracts, while the Bundeswehr cuts its workload by sharing responsibility for the armed forces. Nevertheless, as the table opposite shows, there are some drawbacks for the state. 1 D. Avant, Selling Security: Trade-Offs in State Regulation of the Private Security Industry, 2007; T. Jäger and G. Kümmel (Eds.), Private Military and Security Companies. Chances, Problems, Pitfalls and Prospects, Wiesbaden: VS Verlag p421 422. 2 C. Reichard, New Public Management als Auslöser zunehmender, Ökonomisierung der Verwaltung, 2003; J. Harms and C. Reichard, (Eds.), Die Ökonomisierung des öffentlichen Sektors: Instrumente und Trends, Baden-Baden: Nomos, p120. 62 Volume 4 Issue 4
Joining forces: outsourcing military services to German companies Public-private partnerships (PPPs): the pros and cons for the Bundeswehr Pros Boosts the state s financial opportunities by generating shortterm private funding for projects that require big investment. Develops private-sector knowledge, expertise and project management concepts within the military. Permits the release of military personnel from support duties, allowing them to concentrate on military core activities. This is particularly advantageous for operations abroad. Establishes transparent and effective business practices based on corporate objectives, incentives, contract management and controls. Private management and businessoriented PPPs create more efficiency within the federal state. Cons Creates hidden debts within the federal budget. Reduces capabilities in areas formerly handled by civil or military personnel. This results in higher dependency on external (human) resources. Creates higher transaction and coordination costs between the core military and the private service sector. This leads to unwanted deficits in military training. Possibility of direct ministerial influence is lost. Possible gains for the state in efficiency are hindered by the differing agendas that public and private partners harbor. Profit, not efficiency, is usually the key motivation for businesses. While some recent empirical studies have attempted to explain whether PPPs have worked, there is no definitive answer Evaluating privatization projects within the Bundeswehr With some projects having been in operation for several years and others still in their infancy, it is difficult to assess whether rolling out military projects to the private sector has ultimately been successful. For instance, delegating mobility services in Germany has taken place for the past 10 years. In contrast, the IT rollout that began five years ago is ongoing. While some recent empirical studies have attempted to explain whether PPPs have worked, there is no definitive answer. But despite this ambiguity, there is substance to some of the conclusions reached in those studies. The findings include: 1. Not all Bundeswehr service sectors could be privatized successfully While privatization projects for apparel and mobility were established relatively quickly thanks to a favorable political framework it took more than 10 years of market planning and surveys before IT programs were launched. The lengthy time frame proved frustrating for private IT companies, some of which nearly abandoned the scheme. Other projects, such as the plan to roll out catering and support services to private companies, have completely failed. 2. The potential of some modernization projects has not been realized The mobility service is organized in such a way that the BwFuhrparkService (BwFPS) can rent cars to the Bundeswehr s military and civil personnel, but not to external costumers. In addition, army personnel can only call BwFPS for cars, even if private taxi companies are cheaper. The upshot is that the terms and conditions of this particular PPP could be forcing the military to pay more than is necessary for car rental and taxi services. 3. Privatizing services within the Bundeswehr may have positive results, but it can affect the quality of structures and processes In 2008, the HERKULES project a 10-year, 7.1b scheme that seeks to modernize and standardize civil IT and communications systems within the German Armed Forces was launched. The 63
Article While privatizing aspects of the military sounds relatively simple, the rules under the German Constitution make it a complex affair initial aim was to replace 140,000 PCs, 7,000 servers, 300,000 landline phones and 15,000 mobile handsets across 700 German locations by the end of 2010. To carry out the project, the federal state, Siemens Business Service Ltd (SBS) and IBM created a joint venture company called BWI Informationstechnik (BWI). Since the project was launched, the Bundeswehr Institute of Social Sciences (BISS) in Germany carried out a study to see how effective HERKULES had been. 3 The rollout of modernized IT systems has been well received by the German Armed Forces, according to the findings. Mobility services within the Bundeswehr have improved as a result of the new car fleet. Tracking vehicles and leasing them to army personnel is now easier than before, while the system also allows the military to assess the condition of its vehicles and carry out maintenance where necessary. 4 However, the new system has created higher demand for vehicles, resulting in less availability. Efficiency and productivity have also suffered in the time taken for army personnel to familiarize themselves with the new technology. While the HERKULES project has helped modernize IT systems within the German Armed Forces, this particular PPP has created a few problems. Overcoming the complexity of the Bundeswehr s organizational structure when introducing updated technology and software has proved problematic. Similarly to German corporations, the army has suffered from an increased layer of bureaucracy when adopting private business models and structures. Challenges: how the Bundeswehr is evolving through privatization Privatization within the German Armed Forces only comprises outsourced administrative and support services. In contrast, the British, French and US armies have outsourced core military tasks, including combat, to private companies. For the time being, the German state has no plans to follow suit. There are, however, plans to create even more PPPs. These will see the Bundeswehr outsource more army services to the private sector. Reducing the number of military and civil personnel, while continuing to serve both at home and abroad, is also on the agenda. The challenge there is to ensure that any drop in personnel does not affect the military s ability to carry out its domestic and international duties. Achieving this requires maximized efficiency between all parties involved in PPPs. This sentiment was echoed in a German military white paper from 2006, that said: Cooperation with trade and industry on service tasks, extending as far as the outsourcing of complete task packages that the private sector can provide more economically, is being pursued further. 5 More recently, an official German Ministry of Defense document on the country s defense policy made clear the state s intention to work more closely with the private sector. [To] fulfill Bundeswehr tasks, cooperation is sought with industry as well as with other government institutions and private bodies, the 2011 report said. 6 The benefits for both parties are clear: businesses generate huge amounts in revenue from lucrative military contracts, while the Bundeswehr cuts its workload by sharing responsibility for the armed forces 3 G. Portugall and G. Richter, The Modernization of the Communication and Information Technologies of the German Armed Forces: Project HERCULES a Living Partnership?, 2010, Performance, Vol. 3, Issue 2, p22 27. See also SOWI.NEWS 1/2011. 4 G. Portugall, Doing more with less: the economic modernization of the German Armed Forces, 2009, Performance, Vol. 2, Issue 3, p31. 5 Federal Ministry of Defense (Ed.), White Paper 2006 on German Security Policy and the Future of the Bundeswehr, 2006, Berlin, p84. 6 German Ministry of Defense The Minister (Ed.), Defense Policy Guidelines, Berlin, 27 May 2011, p15. 64 Volume 4 Issue 4
Joining forces: outsourcing military services to German companies Assessing the impact Rolling out military services to the private sector has proved lucrative for the companies working with the armed forces. Meanwhile, the Government has reduced its workload by outsourcing tasks to German corporations. But what impact has this strategy had on the state s military and its personnel? A greater level of efficiency is one positive outcome from outsourcing services to German companies. Establishing partnerships with the private sector has led to the military adopting business management practices and processes, and corporate objectives, incentives and controls. Offloading non-core services has also allowed the state to focus on prime military activities. On the downside, efficiency and productivity have suffered in the time that it has taken military personnel to get used to new processes, procedures and modern technology. The Government has invested in PPPs, some of which have failed to take off. In addition, the state relies heavily on outside companies to help maintain high service levels within the German military. In short, there are several pros and cons to privatizing the Germany military. But whether the benefits outweigh the drawbacks remains open to debate. Risky business for the UN Debate over whether countries should outsource military services to the private sector continues, following claims that the United Nations Organization (UN) is too reliant on outside contractors. The Global Policy Forum (GPF) told the BBC in July 2012 that the UN s use of private military and security firms was dangerous. It also reportedly said that such companies were generally unaccountable. Citing incomplete data, the GPF claimed that the amount spent on private-security firms had increased by 77% since 2010. Responding to the claims, UN spokesman Martin Nesirky reportedly said that the use of such contractors was appropriate. The UN could continue employing security firms, provided they carried out due diligence, he added. According to the Dangerous Partnership: Private Military & Security Companies and the UN report, the amount spent by the UN on privatesecurity firms went up from at least US$44m in 2009 to US$76m in 2010. Most of the money was spent on peacekeeping operations, refugee activities and the UN Development Program. The report claimed that private contractors pose several risks to UN operations, such as carrying heavy automatic weapons and violence arising from aggressive behavior. Armed security contractors can also smuggle weapons into conflict zones and sell them, or make them available to parties to the conflict, as has happened in Bosnia, Sierra Leone, Afghanistan and Somalia, the report warned. 65